Reader Mailbag: Cycles

I find that my passions are cyclic. I have about three or four things I’m deeply passionate about, but the time I have in my average day doesn’t afford me the space to follow up on each of those things to the level I’d like. So I cycle a bit.

I’ll go on a reading binge where I’ll read as much as four or five hours a day. That will ebb and I’ll go on a cooking binge, where I prepare meals that take an entire day. It cycles back and forth, but I find myself always happy with the choices I’m making.

I am 25 and have $7,300 in credit card debt (all on one card, the rest are paid off…). My 401k is currently worth $20,000. I already have one loan against it for $5,030. If I am able to throw as much money as I’m calculating right now, ($480 a month, my two “extra” paychecks since we’re paid bi-weekly, and a bonus at the end of the year for about $1,000) I should be able to have the card paid off by next March.

The interest rate on the credit card is 9.9%. I can borrow another $8,000 from my 401k account with an interest rate of 4.25% – which gets paid to my 401k account (with a one-time fee of $50, which is less than I’m paying a month in finance charges on the credit card). I am debating if I should take out the $7,300 and pay it off in one fell swoop, or if I should stick it out and pay the card off slowly.

If I pay the card off, I intend to lock it up and not use it. I already have an Amazon rewards card I use for gas, or other small purchases and pay it off in full each month. (And the 14.99% or whatever it’s up to is enough to make me stick with paying it off each month!)

My husband and I are trying to have a baby, and would like to be debt free before the child arrives. I would be socking the extra money away into my ING savings account to build up our e-fund for the extra baby expenses since we hope we’ll be able to have the baby within the next year (or sometime in 2011). I have to pay the loans from my 401k off all at once, so I’ll wait until I have the extra $5,000 or $7,000 in my account and pay it off before the loan expires.
– Jessica

Here’s the thing, though. You might be paying 4.25% interest on the loan, but you’re also “paying” the lost returns you would get on the money. If your 401(k) investments go up 6% in the next year, you’re effectively paying 10.25% interest to pay off a 9.9% interest debt. Really, it’s a coin flip and, to tell the truth, if I were to guess, you’re probably money ahead leaving the cash in your 401(k).

If you’re focused solely on debt freedom as your goal, you’ll find an easier path to get there if you take out the loan. However, it may result in you having a weaker financial position overall, especially if 2010 turns out to be a good year for your 401(k) investments.

The number one thing you need to do is to start living on less than what you’re bringing home, because your biggest danger is simply racking up more credit card debt. Don’t “lock up” that credit card later, do it now.

Do you have some suggestions for good two player games? My wife and I are newly married and don’t have that circle of friends that you seem to have that enjoy such activities. Most board games (I feel) aren’t very fun with only two people. I enjoy strategy games such as Risk, chess, Diplomacy. She likes less complicated things. Anyway, if you have any suggestions (whether you think we’d like them or not), I’d love to hear them.
– Andy

These are my four favorite two player games, listed in order of complexity with the simpler ones first. This list is looking solely at two player playability – if you want a game that’s also great with more… that’s a very different list. I’m also not suggesting any games that are “collectible” or require you to buy an unending number of expansions for play. The links go to BoardGameGeek, a website where you can learn a lot more about these games.

Lost Cities is a card game where you and the other player are competing to make ordered sets of cards. It plays very fast, takes about two minutes to learn, and has a lot of replay value.

Ticket to Ride: Nordic Countries is a board game where you and the other player compete to connect cities on a map with railroads. It also works well with three players. The basic “Ticket to Ride” game doesn’t work well with two – “Nordic Countries” works the best with two players.

San Juan is a card-based game where you and the other player are both attempting to build a successful city. This one is very interesting in that there are six “phases” each turn, but you only ever take two of them – one phase chosen by you, and one chosen by the other player.

Race for the Galaxy is probably my favorite two player game (it actually works well with up to four), but it’s got a very steep learning curve. I would not choose it first. It’s very similar to San Juan, mentioned above, but with some refinement and a bit more complexity.

An aside: I don’t view Risk as muchof a strategy game as too much of the game is resolved by dice rolling. Diplomacy, on the other hand, is great.

I am married, we are in our late forties, 2 kids 8 and 13. We have had our 1200 square foot colonial on the market for 1 year. No offers many lookers. At this point I am ready to be done trying this. Our main needs: a little more living space, half bath and updated kitchen. If we are going to stay we have to update the kitchen for sure, it is very old. And I spend alot of time there. The house is also inferior though since there is no bath on the main floor. We have about $70,000 equity in our house now. We would need to use that to make these changes. I have not even started the research needed to find out cost etc. Does it make sense to do this? I know that this is part personal decision. I have done alot of sould searching about want versus need. I don’t really want to have more space to heat etc. We are happy there but would be happier once at least the kitchen is done. Any advice on where to start with this type of project as well?
– Mary

I think you need to spend some time figuring out specifically what you would like to change. Unless you have some unused space, adding a little more living space and a half bath sounds rather difficult to me.

Sit down with your husband and figure out exactly what you want from your house. What do you want the kitchen to look like? Where would you put a half bath? Where would you eke out a bit more living space? Can you actually do all of these things?

You need to move from general ideas to specifics. Once you have specifics, then you can either decide to try to tackle it yourself – which means hitting the carpentry and home renovation section at the library – or hire a contractor to do it. In either case, the first step is specifying exactly what you want.

I’m currently living in my boyfriend’s country, which is culturally quite different from mine. Although I am able to live and work here legally, my residency status does place some restrictions on us. In order to be covered by the public health insurance (by far the best option), I do need to be employed. My language skills aren’t great – I can get around an average day, but can’t yet work in the language. Our finances are merged, and we have roughly 2.5x my monthly income in savings.

In the last week and a half, 3 big things have happened. First, my boyfriend took out a bank loan on my behalf (I’m not able to borrow it myself – residency status. The loan is to pay off a student loan in my home country, and we saw it as a way to simplify paying it). The loan is for a year, and monthly payments are roughly a third of my current income. This is our only debt. A few days later, I was fired from my job. This was completely unexpected. I have up to 2 months to go, but the atmosphere has become toxic for me and I want to leave as soon as possible. A few days after that, my boyfriend proposed. The wedding will be small, probably some time early next year. We haven’t started planning or budgeting for it.

At this point, I don’t have concerns about the loan being paid because my boyfriend is able and willing to cover it (as well as other expenses), but I do want to avoid ‘my’ problem becoming ‘his’ problem (the original loan is from before I met him, and I feel it’s therefore my responsibility). When we get married, the residency restrictions will go away.

From here I can see 3 options: 1) find a new, full-time job. 2) I have a possible options of interesting short-term work (1-2 months, maybe longer), whenever I want it. 3) find a part-time job either in my field or elsewhere, and spend more time focusing on the language (intensive course).

There are a few things complicating this. This is my 4th job in 3 years, and all have ended in a similar way (I think this comes down to communication/cultural differences). As a result, my confidence in job searching is shattered. We’re expecting to start a family very soon (ideally a birth within maybe 6 months of the wedding). The maternity benefits here are amazing – I will receive just less than a third of my current income monthly for 2 years, so we plan that I will spend at least that time at home with the baby. I also have constant doubts that my chosen career is right for me.

So I want would like is advice on what to do now. I really want to avoid ending up in this position again in a short time, knowing I only plan to be working for a short time.
– Mel

My first reaction to this is to do what my parents did: elope quickly and then have a “traditional” wedding later on. Yes, my parents eloped – they were already engaged, but they eloped because there were other legal benefits for doing so.

If you do that, you’ll be able to resolve your residency status and likely be covered by the health insurance there. That will also make your employment a bit easier as well.

If that doesn’t float your boat, I would probably consider finding a job that allows you to absorb the culture and language as quickly and intensely as possible. It can be very difficult culturally to fit in sometimes in a new country and culture and language exposure is the best way to solve that problem.

I’m wondering if it might be a good idea to slightly over-estimate one’s taxes and instead of having it automatically deducted from your paycheck, have the money directly deposited to a savings account like at ING. I’m single so I’m not even sure you can legally eliminate your paycheck deductions but in theory, if you are disciplined enough to not touch this savings account, you could make money on your savings, then pay your tax bill on 4/15. You would be earning interest for 15 ½ months too. For some it might just be $80-$100 a year but with compounding interest, it could turn into a nice chunk by retirement. I am one of those people who hates getting a refund b/c I know it was like giving the gov’t a free loan but I realize some people like it, even though it is essentially a 0% saving account if they do get a refund. What are your thoughts?
– Shannon

For starters, your employer actually pays taxes on your behalf every quarter to the IRS. Taxes are due quarterly, whether you’re employed or not – you just don’t see this if you’re employed.

Also, most employers are required by law to withhold taxes on your behalf. You don’t have the option for them to not withhold money for you. The best you can do is modify your withholding status to minimize what they hold out for you.

I do agree that for many people, it does make sense to overestimate on taxes. It’s far better to receive a refund (even though you weren’t able to earn interest on it) than it is to have to pay a large unexpected bill in April.

My wife and I have some pretty ambitious goals for the next 2-3 years. We want to save a pile of money for either a down payment on a new house or to pay off our second mortgage on our current house if we decide to stay there. We want to be in a place financially that we can afford for my wife to stay home full time when we have our second child (date TBD) and we want to pay off all of our non-mortgage debt other than a couple of subsidized student loans. Every month as I’m writing extra checks to pay off debt or put into savings, I ask myself if life wouldn’t be more fun if I just spent that extra $1000 a month on something fun that I could enjoy now. It’s just very frustrating to think that we could buy new clothes, go out to dinner several times a month and go on a couple of nice vacations a year with this money. We’re not struggling financially at all have have no CC debt, so sometimes I wonder if we’re doing the right thing sacrificing now for the benefit of our future. My rational mind knows we’re doing the right thing, but it’s difficult at times. Please assure me that I’m doing the right thing and that it’s worth sacrificing a bit to reach your goals!
– Nate

I can’t answer that for you. It depends on what you value.

Simply put, do you value that nicer home or debt freedom more than you value eating out or trips or clothes? That’s your values, and it’s what you have to figure out.

For me, the big thing I’m staring at is the house in the country with some woods out back, as well as long-term financial stability. That trumps an awful lot in my life – new clothes, new books, extensive travel, and so on.

You’ve got to sit down and ask yourself which is more important. That takes some soul searching. There is no right or wrong answer to the question.

I am writing on behalf of my ex-husband, Bill (who is still a good friend). Currently, he’s 49 years old and has worked for over 20 years as a cameraman/videographer for a local TV station. That has been his whole career since college – running camera since he was 21. He also gets some freelance work on the side including about 4 months a year running camera for the local hockey team. He is completely burned out by his television station job. He’s a night owl but for 20 years has had to get up at 2:30 in the morning in order to be at work at 3:30 a.m.

He would love to quit his job. He doesn’t know if he wants a whole new career or whether to work by strictly freelancing. He lives in Nashville which offers a fair amount of freelance work but there are a lot of other freelancers out there too who are all looking for work.

Financially he is in pretty good shape. He owns his own home – has approximately ten years left on the mortgage, but would be willing to sell it and move to a smaller condo. He hates apartments. He is also in excellent health, he exercises regularly and eats the right foods. I am guessing that his annual income (including freelance work) is around $75,000. And knowing him, I would guess he has at least that much in savings and stock.

He has been reading books including one called “The Lemming Conspiracy” and has recently decided to consult a finance person (but doesn’t know if that should be a CPA or a Financial Planner) and a career consultant. Beyond that he does not know what steps to take. I have told him that if the very worst happened he could always live in my guest room for awhile. His parents have a fair amount of money and have bailed out his siblings before but he has never asked for a penny from them and I don’t think he ever would.

I keep telling him that if he could come up with a plan he might be able to leave his job within six months to a year. But he is having trouble figuring out what steps he should take in order to come up with a plan for exiting his job. Also, and I don’t know if this matters at all – there have been layoffs at his job and the severance packages have been very generous – two weeks pay for every year worked. He would be thrilled to be laid off. Is there any way to “make that happen”?

Could you offer some advice on what steps he needs to be taking? He’s not the type to just quit his job on a whim and he would feel a lot better about it if he had what he thought was a sound plan.
– Terry

If he’s having a difficult time assembling a plan for where to go next with his career, a career consultant might be a good choice. Some people are simply more able to plan than others, and career consultants are there to help those who have difficulty planning in that way.

Given his position, I think his big question would be what he truly enjoys doing. What things really get him excited? What is he really good at? Where do those two lists overlap? That’s a good pointer as to the direction he should be going.

I will say this: money isn’t everything and if his job is making him deeply unhappy with his life, he should move on. The key now is to figure out what that direction is.

Do you read spoilers of upcoming episodes of television shows that you like? Or do you wait until they air?
– Kim

I usually avoid spoilers if I can. I prefer not to know what’s going to happen next, no matter how curious I am. It makes speculation fun with my wife, since we generally watch the same things.

In the case of Lost, this is actually fairly tricky, as I have a pair of readers who seem determined to email me spoilers. I’ve seen very detailed descriptions of things that have yet to air, which has been frustrating.

I don’t mind seeing minor spoilers, though – the types of things that show up in an Entertainment Weekly article. I just get frustrated by detailed ones, the type that removes the fun from actually watching the show and discovering things as you go along.

I am 33 years old, married, no children. I make approximately $45,000 per year with bonuses/incentives. I am currently in sales. Until last year, I was making $68,000 per year with bonuses/incentives, I have been at this current job for 3 years. I am currently $44,0000.00 in credit card debt, living paycheck to paycheck. Before coming to this job, I was making $32,000 a year, and $50,000 in debt. While making the $68,000 (1.5 years), I was able to pay off some debt, and was working on paying it down vigorously. Since my incentives were cut, I am living paycheck to paycheck and incurring more debt. I also pay much more for benefits here than at previous employer.

My husband is currently making $52,000 per year, and he is also almost $40,000 in credit card debt. He has no 401k, very little savings, and no life insurance. I on the other hand, have $41,000 in 401k at my former employer, and $13,000.00 at my current employer, and $275,000 in life insurance. I was contributing 10% until my pay was cut last year, and have since only contributing 5%. I have a very small savings ($700). Contributing $150 per month (have to withdraw some most months)! I do pay extra each month on all my minimum payments, anywhere from $20-$50 per bill. Interest rates range from 2.99-25%.

My question is I am currently thinking of withdrawing the entire 401k ($41,000) from previous employer and paying off my debt. I realize there would be many penalties, and have to pay taxes in 2011. Currently, I would have to pay 10% penalty, and any remaining above 20% withheld. But, I believe this would help me to pay off debt, help my husband with his, and I could save the 10% penalty for next year. I feel I still have plenty of time to build a retirement, and could contribute more once out of debt.

We do own our house, we currently pay only $500.00 mortgage per month, 4% interest rate (personal loan from husband’s family) ran loan for 20 years, 15 years remaining on loan! Purchased family home for tax assessment only ($60,000) from family, put $20,000 into renovations, personal loan for $80,000!

What are your thoughts? Please help!
– Curious

$88,000 in credit card debt is painful. For those who aren’t math folks, if they have an average of 20% interest, that means $17,600 a year in interest – or about $1,700 a month (or so) in minimum payments.

The first thing you need to do is cut up the credit cards and do not use them again until you’re debt free and have been for a while – probably a long while. You have to start living within your means, period. If you do not do this, it doesn’t matter what you do to pay off the debt because the debt will just come back. You have to make that commitment.

If you’ve done that and have no access at all to the credit cards, then I would consider taking a loan from the 401(k) instead of just withdrawing all of it. Many 401(k) plans allow you to borrow against them for various reasons. Use that loan to take out credit card debt. This will drastically reduce the interest you owe and won’t, in the long run, completely destroy your retirement savings.

Other than that, it’s going to simply be a long slog. You’ve got a large mountain to climb.

Why do you allow negative comments? I’m so tired of them.
– Kelly

First of all, disagreement is not negativity. Saying, “Trent, I disagree, this is how I see it” isn’t negative, although it’s easy to see why it might be.

Personal finance is not black and white, not cut and dried, no matter what your favorite personal finance guru might say. Personal finance is a long series of choices, and often those choices have some logic on both sides of the coin. I might think that one side of the coin has more logic, but others, with other perspectives, might see the benefit of the other side.

I don’t like true negativity. Just because someone sees a situation different than you is not a reason to attack them personally. In fact, the world (and especially the internet) would be a better place if everyone felt that way.

However, disagreement and different perspectives are valuable, and we all learn from them. Don’t attack people or ideas, just offer your perspective.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

Outside of the most obvious and FUN “two player game” for a newlywed couple…I can suggest but one thing: WII.
I am NOT a video gamer at all–but this thing is different. My wife and I (who are anything but newlyweds–13 years) play this thing together almost daily. There are great “no brainer” games, fun stuff like Rock Band and game shows and more complex games of skill and strategy. It really has it all.
The initial purchase is more than a board game ($150-$200), but MOST of the games are reasonably priced and you can find them used. We have had the thing two years and it gets use EVERYDAY. I love the thing…it’s been a real value around here!!!

I recently took out a 401k loan to pay off some credit card debt. I’m going to do my best to track the prices of the underlying security that I took the money from to figure out the “true” cost in interest.

At the same time though, it is a bit disingenuous to think of it in that manner. You are only getting rid of theoretical gains the market price could easily correct itself in such a way that having the money out of the market for that time frame will make no difference in the long run.

Also, worth noting, you start to pay back the loan immediately, so the full sum does not sit out of your account the entire time. I am not willing to keep track of this pedantically in my analysis though.

In response to Shannon’s question, I wanted to point out that no one is considering tax penalties. If your tax liability at year end is greater than $ 1,000 and your income is similar to last year, you could be subject to penalties up to 4% which would in effect negate any interest you earned. These laws are in place so that the government receives a steady amount of tax revenue throughout the year. Just something to think about from this CPA.

Based on my understanding of 401(k) loans (which is imperfect, since I’ve never had one myself), your answer to Jessica is incorrect. Since with the 401(k) loan she’s paying interest to herself, the effective cost is not the interest rate plus the lost gains, it’s *just* the lost gains.

So by taking the 401(k) loan, she’d be effectively trading a variable gain (which could be 6% or 16% or -60%) for a sure gain of 9.9%. Unless she lives in a world where her 401(k) can get a safe return of 9.9%, that’s a win.

Somebody will probably say something about how you’re being “taxed twice” on interest on a 401(k) loan. This is true: You repay the loan with after-tax money, and then you pay taxes on the withdrawals when you retire. But it’s also a red herring, since regardless of what Jessica does, she’ll be paying interest on her loan (to herself or to the credit card company) with after-tax money. In fact, if she’s not already contributing the maximum to her 401(k), she can increase her contributions so that the additional interest she would have paid to the CC company goes into the 401(k) instead, get an additional tax break, and come out even further ahead.

It *sounds* like Jessica’s already living within her means and not taking on additional debt. So if the numbers she gives ($480 left over every month, etc.) really reflect reality and not just wishful thinking, I would say that the 401(k) loan is the right decision.

special to “Curious”–if you opt to liquidate part of the 401k to make debt payments, be sure to figure (and, I’d say, OVER-estimate) the amount you’d owe in penalties and taxes. It’s something I neglected to do when I liquidated part of an IRA–I took out enough to handle the 10% penalty and did some back-of-envelope figuring on what I’d owe in federal taxes. Came tax time, I was horrified to discover I owed several thousand dollars in state and local taxes too. My suggestion is, if you can take a loan against the 401k without touching it, do. If you liquidate part of the 401k, over-estimate what you’ll owe in taxes and sock it away until the tax bill comes. And good luck!

Actually, I’m not sure my previous comment is right. Jessica says that she has to repay her entire 401(k) loan at once (so she’d be losing out on gains on the entire loan balance for the entire loan term), whereas she would be able to pay down the credit card bit by bit (so she’d only be paying interest on the remaining balance). Taking that into account, it’s more like comparing the variable return on the 401(k) to a sure return of about 5% (interest on the average balance, which is about half of the starting balance).

Mary if you have many lookers and no takers you probably priced yourself out of the market. When looking for a house, especially in a down market I saw a lot of that, there was one couple that was desperate to sell their 2 bedroom 1 bath, but it was listed at 150,000. I ended up buying the house across the street which was a 5 bedroom 3 bath in better shape with a lot size almost double for less.

Mel – as an expatriate living abroad myself, I think that if you are now getting married and settling down for the long term in this new country, you _have_ to make getting the language down your priority. Understand that classes are themselves something of a crutch: since you’re in an immersion situation, having a class taught in English means you’re hearing _less_ of the language than you would be if you were out there interacting.

You need good reference books you can look up grammar points and vocabulary lists in, but after that you have to just talk your way to fluency. That means finding conversation partners who are patient and willing to correct you and just _talking_. (Your solo homework comes in learning how to write–for Chinese and Japanese this is a lifelong burden but no matter what the language it’s super-important to be able to do it correctly.)

The other key change you need to make is in making sure your fiance is one of these conversation partners. You’ll have to change your habits, if you’re used to speaking English together. Have alternate language nights and make him make you speak his language and correct your mistakes.

Eventually language fluency will be followed by cultural fluency which will make your life a LOT easier. But you can never be a fully functioning member of society until you get your language mastery down. Once you get to that point, your cultural comfort and career options will be much, much better.

My husband set up something with his employer where he has either no or very few (less than $75 per month) withheld. Somehow we still manage to get a couple G’s from the feds every year in a refund. It’s all about the tax credits!

Andy – Two games that my wife and I really like to play are Cribbage and 10,000 (may be called Zilch or some other variation). Cribbage is a card game that we’ve literally played for four hours on a ferry ride before. It may take some time to get used to, but if one of you knows how to play, you can just play with open hands for a few rounds for the other person to get the hang of it. 10,000 is a fun dice game where you bank points to try and get to 10,000. You only need 6 dice to play, and each game may last about 5 minutes. There are many scoring variations, but I like the scoring for the game called Zilch the best, if you just do an internet search for that. You can even play it online at a couple of internet sites to get the hang of it.

Mel – I will second comment #11 above. I lived abroad for 12 years and it is essential to learn and absorb the language – and the cultural aspects – as quickly as possible. If you put the effort in now, it will make your life so much easier in the long term. I took intensive language classes and worked a part time job where I had to use the language most of the time. It will take a while to gain fluency, but it will be well worth it.

I had a friend who didn’t want to spend the time learning the language in any depth, and her experience abroad was far less positive than mine. She experienced a lot of problems arising from miscommunication and a lack of cultural understanding.

Updating a kitchen is one of the best ways to make a house more attractive to buyers. We finally updated ours about 2 years ago so we could enjoy it a few years before relocating; our only regret was that we didn’t do it sooner. Just be sure to set a reasonable budget & stick to it – we found less expensive options for countertops, flooring & appliances that look just as modern & work just as well as the high end stuff – & are more appropriate to the neighborhood the house is in. We are fortunate that my husband could do almost all the work himself with limited assistance from me. All we changed on our very old (1940’s) cabinets & drawers were the paint job & new handles.

If you’re in an area of the country with decent weather, maybe your added living space could be a nice covered deck or patio (maybe screened in) instead of a room. A ceiling fan for summer, an outdoor heater or fire pit for winter, & it’s livable!

Adding a bath can be an expensive undertaking & in your case it doesn’t sound like you have extra space right now for it. Would be more worth it if your family would use it regularly (as opposed to just a guest bath). But if that’s truly a factor in why people aren’t buying, then it might be a good investment – especially if there’s a bedroom on the first floor.

Curious – sounds like you’re living unrealistically above your means, if your combined debt is about 1 years’ income. Buy one of the books Trent’s recommended on debt reduction/money management & get real!

I’m with Trent in his constant advice to people to not use their 401K for debt reduction. I think that is a BIG mistake. I imagine most people who plan to do that haven’t adjusted their spending enough and will end up getting back into debt again. I think in many respects it is better to pay off your debt slowly (read PAINFULLY), because that brings home to the person the gravity of debt. Hopefully that will lead them in the future to live more within their means.

It sounds like Curious needs to sit down with someone frugal and living debt free. Perhaps that person could help you and your husband find the ways in which you can cut your spending and learn to live within your means. That type of debt is unsustainable. You make far too much between the two of you for me to come up with any reason other than overspending to explain that much debt. Your mortgage is extremely low, so you must be hemorrhaging money somewhere else.

Mel – One more comment. As you moved abroad to live in your future husband’s country, it is important to realize that you are at a disadvantage culturally, linguistically and professionally. I moved to a European country to live with a former spouse, and I experienced this disadvantage in many different ways, especially in terms of earning a living (compared to what I could have earned in the U.S., my country of origin). It may be helpful to think of yourselves as a team, and consider finances in terms of ‘ours’ and not just ‘yours’ and ‘his’. You have taken on a big cultural ‘debt’, and your earning potential will likely suffer as a result. If your future spouse is willing to cover expenses while you spend time getting up to speed with the language and the culture, why not? Living abroad with a partner/spouse is rarely a 50/50 ‘split it down the middle’ kind of thing (as a relationship/marriage with someone from your home culture and in your home country may be). I found it very helpful to look at the situation from this perspective, especially when making major decisions.

Mary–As someone who has done a complete kitchen remodel, I can honestly say it is well worth the investment and the headache, and it may also completely change the way that you feel about the rest of your home. We had a very outdated kitchen (original from the 50s). It was awful. Just awful. We did a complete overhaul–cabinets, countertops, appliances, backsplash, fixtures–you name it. That was almost three years ago, and every day when I walk in I still love the results. I tell people all the time that it was worth every penny and I would go through the hassle again in a heartbeat. If you love most of the other things about your house, spend the time and money on a remodel that you will be happy with. Then enjoy it for a while, and if you still think you want to move, at least you’ve increased your home’s desirability and resale value.

And of course, put another vote on for Lost Cities. It’s a great quick (my girlfriend and I can play a game in about 10 minutes) game with a lot of strategy and planning required. The other one I might mention is Citadels. It’s more fun with 3+ players, but the rules set up for 2 players make it quite entertaining as well.

My exercise interests run in approximate 3-month cycles. I’ll tear up the treadmill for about 3 months, then do weightlifting, then try exercising to a video, then sit on my backside and not exercise at all, and then do some cycling, etc. All in 3 month cycles. Actually, the non-exercise phase tends to go longer than 3 months :-(

This results in piles of old exercise DVDs, an unused treadmill in the house, a “gazelle” glider, various rubber band-type exercise gear, various sized weights, and several types of “exercise gadgets” etc. cluttering up the house. My husband got hooked on the gazelle and lost 35 lbs. in 6 months. I just couldn’t stick with that, or any other exercise regimen for very long–it just gets boring, and unfortunately, expensive.

Mary- I think this is an interesting statement
“We have about $70,000 equity in our house now.”

You only have $70,000 equity if people are willing to pay as much as you are asking for your house. If it isn’t selling then I would say that you are asking too much and you don’t have as much equity as you think.

Jessica: I wouldn’t do the 401k loan. You’d only be saving maybe $200-$300 in interest for the year. But you’d be risking making more with your 401k investments, you’d be in trouble if you lost your job and they called the loan, and 401k money is safe from bankruptcy.

Shannon: If you repeatedly ended up owing the IRS more than what was withheld then they will start to require you to pay quarterly. If you grossly understate your income and have very high bills then they may start to penalize you.

Curious: Don’t cash out the 401k. You and your husband are spending beyond your means. Theres no reason a couple making about $100k should be struggling and in so much debt. You’re spending too much.

I’m doing what Shannon suggested and having my withholdings minimized by claiming many deductions on my W-4. For me it’s more about a protest of what the federal government is doing than about pure finance, but it’s definitely a viable idea.

You do suffer a penalty if you underpay too much, which is detailed here:http://www.irs.gov/taxtopics/tc306.html I hope to write a check for $1000 next 4/15 as that is the minimum I can do without penalty.

Jessica and Curious – Warning regarding 401k loans: If you leave your job for any reason (voluntarily or involuntarily) the loan must be paid in full or you will owe taxes and penalties on the balance. If at all possible I would avoid a 401k loan.

I think “Curious” has left out a lot of critically important information. What the heck are she and her husband charging on their credit cards? They make almost $100k per year and are clearly living in some respect as though they were making 3 or 4 times that money. But most people who spend that extravagently are spending a lot of money on housing and those who have children tend to pay a lot of tuition. “Curious” said they don’t have kids and that they’re paying a pittance for their home ($500/month and didn’t put down a down payment!). So, where is that money going?

The other thing that jumped out at me was that when she more than doubled her income from $32,000 to $68,000 she says she was aggressively attacking her $50,000 of cc debt. In a year or year and a half she knocked out $6,000 of cc debt. That’s ridiculous. When her income went up she should have been able to put at least half the increase in her net income towards eliminating debt (I’m saying only half because it’s obvious that she wasn’t making ends meet on the $32k or she wouldn’t have been $50k in the hole). So why wasn’t she able to knock out at least $15,000 of that debt? Personally, I would have put almost *all* of the increase towards paying down debt that year.

If the things they’re spending all that money on are tangible items (like boats, motorcycles, designer clothes, etc.) then they should start selling them. If they’re spending money on 5 star restaurants every night, $50 bottles of wine with dinner, overseas travel or other things that don’t leave them with anything they can turn around and get some money back on, they need to stop spending! And, if they’re gambling or have some other kind of problem, they need serious help right now.

“Curious” absolutely shouldn’t think of cashing in her 401k (especially given what would happen should she lose her job) but perhaps she could look into a consolidation loan to lower the higher interest rates to something passable. But it will all be for nought if they can’t take control of their finances and stop spending like their last name is Gates!

You borrow PRE-tax dollars,
You repay with POST-tax dollars
Your money is taxed AGAIN when you withdraw it in retirement.

This money is much more expensive than it appears. Another catch: As a rule, you must repay the loan within 30 days of leaving/losing your job. Work is hard enough these days without adding another weight around your neck.
Says the voice of experience: I consider it the dumbest financial move I ever made. Fortunately, I used it as a bridge loan to buy a home that doubled in value before I sold it. I repaid the loan within nine months, but felt like a job prisoner the whole time. I’m glad I bought the house, but I still wish I’d found the money another way.

@Diane: No, if you actually DO the math, you see that that’s not actually a problem, since the money you receive when you take a 401(k) loan is not taxed. So if Jessica were to take a 401(k) loan, she’d be paying off her credit card with money that had *never been taxed*. She’s taxed zero times on one sum of money, and twice on another sum of money, so it all balances out.

I also don’t quite understand the “but what if you lose your job?” objection. True, if you lose your job, the loan turns into a withdrawal (and is taxed and penalized), and that’s a bad situation. But if you lose your job while you have a mountain of credit card debt, that’s also a bad situation. Jim has a good point about keeping money in the 401(k) to protect it from bankruptcy, but it seems unlikely that Jessica will end up declaring bankruptcy over hr $7k credit card debt.

I’m with Shevy (comment#28) regarding Curious. With ridiculously low housing and no kids, I can’t even imagine spending so much money that would put me in that kind of debt. I would love to see Curious write back in with a listing of a weekly/monthly spending log, then let us all review it and offer suggestions.

In fact, if there are people willing, that sounds like a fun feature to offer on the blog, Trent. Ask readers to send in their spending logs, let internet strangers tell them where they can trim it.

And a suggestion for Nate trying to figure out what he really values: I hate making that kind of decision, so my usual solution is to split the difference (not necessarily equally). So, instead of putting $1000 every month in your long-term savings and regretting the missed fun, what if you put $800 or $900 in savings, then keep the $100-$200 for shorter term fun like vacations and dinner out? You may find that you can’t enjoy a vacation knowing that you’ve missed out on saving that money, or you may find that it’s just the right amount to help you stick to your long-term goals without getting completely burned out by all the scrimping and saving.

I just want to say thank you to Trent and others for answering my question. You have all given me a lot to think about – and of course my fiance (It still feels strange saying that!) will be involved in any decision I make.

I’m still trying to think of what the job to absorb the language would be!

#30 – The big deal about the “what if you lose your job” objection on the 401k loan is that the ENTIRE loan is due within a short time (I think it’s either 30 or 90 days) or you face big penalties. This applies whether you quit voluntarily or you are fired for cause or you are laid off. So I think that is a very big deal, especially in this economy. At least if you have credit card debts you can make the minimum payments when you lose your job.

#31 I love to lurk on the get rich slowly forum for just that aspect– people laying out their spending plans and people offering suggestions and encouragement. CNN money also has a little feature like that, only with a financial adviser (seems to have replaced millionaire in the making).

Fun games for two: backgammon, Yahtzee, scrabble, Monopoly, canasta. We put together a small package of our favorites, with about 5 games in it, for travel. No need for batteries, TV screen, electricity…

@Erin: The “big penalties” are taxes (which don’t really count as a penalty, since you have to pay taxes on the money eventually anyway) plus 10%. If you’re just making minimum payments, then the rest of the balance is accruing interest, and depending on the interest rate, it might only take a few months before that extra interest amounts to more than the 10% penalty. And if it gets to the point where you *can’t* make the minimum payments, then you’ve got penalties to deal with there as well, plus the hit you take to your credit score.

I’m not really as much of a champion of 401(k) loans as I’ve been sounding like – I just think that a lot of the reasons people give against them don’t make a lot of sense, and are a little too one-size-fits-all. Obviously, though, if you think you might want to leave your job voluntarily before you’d be able to repay the loan, you might not want to take the loan.

And I think the biggest real drawback to 401(k) loans is the same as the drawback to taking any other kind of loan (home equity, personal, etc.) to pay off credit cards: If you’re not 100% sure you’ve got your spending under control, there’s the danger that you’ll just run up the credit cards again, and then you’ll be in an even deeper hole than before.

Andy- My husband and I enjoy playing Speed and California Speed together. All you need is a deck of cards (it doesn’t even need to be a complete deck- it just needs an even number of cards) and a flat surface. You can find instructions at ttp://en.wikipedia.org/wiki/Speed_(card_game)

Curious- Aside from all the financial pitfalls that come with removing money from a 401(k) before retirement, I would recommend against it until you get to the root of why you have so much debt. If it is a result of living beyond your means or spending for emotional reasons (as opposed to, say, medical bills), you are at risk of running up the debt all over again.

Andy – We have found that “Pandemic” works very well 2-player. “Al Cabohne” is the 2-player version of “Bohnanza”, and is also very good. “Mamma Mia” is great as well. Both of these are card games, and very easy to throw into a bag for a trip.

i had less debt, but also a much lower income, and couldn’t keep up w/ it. i use care one credit counseling, and am now almost out of debt.

i know some people advise against using companies like this, but it has worked for me. one reason people advise against it is because sometimes your credit score will go down if you are in a debt management program. but mine actually went up- i was so overwhelmend and disorganized and had so many different accounts i’d usually miss a payment (or a few) every month.

my score was good enough that we were able to get a (fha) mortgage to buy our first home a few years after i had started the care one program.

i don’t know how they charge fees- w/ me, i pay $45 per month in addition to the money they use to pay my creditors. once a month they deduct a lump sum from my checking account and pay everyone. i used to pay way more than $45 per month w/ all of the over limit and missed payment fees and usury interest rates, so it’s a good deal for me. plus, they negotiated rates down on my accounts- from about 30% on some of them down to 9.9 or 5.9 or even 0%.

and i was so disorganized i didn’t even start the program w/ all of my debts- months later if i’d get a bill from a collection agency, or a dr bill, i could add it in later.

if a lot of the money you owe is from the high interest rates, your debt is going to continue to grow. so care one could really help you if you sign up w/ them.

i know some agencies are scams, but care one really is a good one, and i’m so happy i did it. now i owe less than $4000 and soon will owe nothing!!

curious- if you’re still putting 5% of your salary into your 401k, but your credit card debt is still growing, i think you’re losing money. i know if your company is matching a portion or all of what you’re putting in it might make sense to keep contributing, but if you have a lot of credit card debt at 25%, you might be making a mistake.

and it doesn’t make sense to keep contributing at the same time you’re thinking about pulling the money out and pay penalties on it.

and if you’ve been there 3 years, you probably aren’t fully vested in the company contribution amount anyway.

can you at least stop making 401k contributions if you’re going to have to pay a penalty on withdrawing the $ anyway??

here’s another thing about care one- on their website they have a summary of your program, and they give you a chart to see when your debt will be paid off. and you can pay extra to specific debts if you want to.

As I’ve pointed out before, there are people who have a large amount of debt AND do have their spending under control. I have cashed in much of my retirement to pay off debt and I have no regrets. As Johanna pointed out, the only negative really is the 10% penalty, which pales in comparison to some CC rates. The other argument is about losing savings momentum that can never be regained. The market can wipe that out pretty quickly. It can also spike it just as fast. Why keep storing water for a future fire when your house is burning to the ground right now?

Books worth budgeting for

My new book, The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams, is available in bookstores now. Check out some of the life-changing experiences the book has given readers!

Check out my book, 365 Ways to Live Cheap, available in bookstores everywhere! It's filled with 365 great tactics you can apply to your personal finances, from frugal tips to great ideas for managing your money.